more-arw search

The Best Way to Solve Your Cash Flow Problems

The most common challenge I see with start-up ventures is product infatuation.

A friend of mine has said there is no such thing as a bad business or entrepreneur; it’s just that most of them run out of cash before they can figure out how to build a sustainable business model. Whether you agree or disagree, at the heart of that sustainable business model is paying customers.

The most common challenge I see with start-up ventures is product infatuation. The founders are usually pretty excited about their product or service, having invented it or been heavily involved in its design, engineering, or implementation. But their infatuation gets in the way of solving the cash flow problems common in start-ups--no paying customers.

I would classify start-ups into two categories--those with paying customers and those without. Those with paying customers are much more likely to succeed, having passed the proof concept phase and validating they know how to get at least prospects to take the plunge into their product or service. I authored an article on American Express OPEN Forum in which I identify the nine ways paying customers are The Silver Bullet of Cash Flow.

The best way to solve the cash flow problems of a business is to focus on getting and retaining paying customers. If not having paying customers feels like you are stuck in the middle of the dessert during a drought, then you'll be amazed at how paying customers will end that drought and land you in plush land wherein there are more water sources than you even knew existed.

Comments

Topic Expert
Mark Richards
Title: VP of Finance & Operations
Company: RBA Consulting
(VP of Finance & Operations, RBA Consulting) |

Ken,

I would agree - a good lesson from my start-ups is think about what the minimum offering that a customer will buy. Instead of building the full solution, start will just part of it so you can get both revenue and feedback.

One of the mistakes we made was believing we had fully defined the need of the customer - while we were in the ballpark, there was a good deal of rework as we got feedback. With limited capital, it was difficult to rebuild.

For our next product, we started smaller - it cost less to build and operate - and we positioned it as the first step. Sure the market we served was smaller - but we started to get revenue.

That revenue was the real proof of concept that investors were seeking.

A tough lesson, but a good one.

Regards,

Mark

Topics: